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Gearing up for multiple launches in 2HFY25

* Despite strong demand tailwinds, OBER’s pre-sales were stagnant over FY21-23 due to the lack of key launches. However, it has launched a new project at Kolshet Road (Thane) and a new tower at Elysian (Goregaon) in 2HFY24, which will drive 23% YoY growth in pre-sales to INR40b in FY24.

* The company is now gearing up for the launch of the initial phase (2msf) of its flagship project at Pokhran Road (Thane), a luxury project at Peddar Road (South Mumbai) and a new tower at Skycity (Borivali) in 2HFY25.

* The management plans to release the higher-floor inventory soon at Mulund and is confident of increasing the sales run rate to INR10b from the twin projects (vs. INR7b in FY23).

* Additionally, the redevelopment project at Tardeo (South Mumbai) and the recently acquired Gurugram project are slated for launch in FY26. OBER is also planning a mixed-use development at its four-acre land parcel in Worli, which is expected to have a potential of 1-1.2msf (at 6.5 FSI).

* Overall, given the healthy launch pipeline and the anticipation of improvement in traction at existing projects, we estimate OBER to report a 42% CAGR in bookings over FY24-26E to INR80b.

* Beyond this, the management remains focused on redeploying the surplus cash from its ongoing portfolio to grow the project pipeline and is confident of closing few transactions soon.

Rental income will increase sharply in FY25

* OBER’s largest office tower Commerz III (2.2msf) is ~50% leased and will start generating rent in Apr’24. The management aims to achieve 90%+ occupancy by FY25-end. Additionally, Commerz I & II are also expected to achieve full occupancy by Jun’24.

* The Borivali mall is on track to commence operations by the festive season of FY25. The company has already concluded anchor deals for all key categories and is confident of fully leasing out the mall by FY25-end.

* At full occupancy, Commerz-III has the potential to generate INR5.5-6b of annual rentals (including CAM) beginning in FY26. The Borivali mall is likely to stabilize in FY25 and it has the potential to generate annual rentals of INR2.5b. Overall, the company’s annuity rentals are projected to surge to INR12b by FY26 from INR3b in FY24.

Expanding the hotel portfolio to ~1,000 keys

* OBER’s hotel at Goregaon has seen a sharp improvement in operations given demand tailwinds. In 3QFY24, the asset reported ARR of ~INR13,300 (30% higher than pre-Covid peak) and ATH EIBTDA margin of ~42%.

* It is currently developing a luxury hotel – Ritz Carlton – at Worli, which is expected to be completed in 2HFY25 with the balance capex of INR3b.

* With an intention of replicating the success of integrated development model of Goregaon, OBER will build two new hotels of ~280 keys each at its Borivali and Thane (Pokhran Road) mixed-use projects. It has already tied up with Marriott International for the asset management.

* With an estimated capex of ~INR20m per room, the total outlay for this expansion could be ~INR11b. These hotels are expected to become operational by FY28 and would lead to an increase in OBER’s hospitality portfolio to 1,000 keys.

Valuation and view: Healthy growth visibility but upside priced in

* OBER’s completed projects such as Sky City Phase 1, 360-West and EterniaEnigma have the potential to cumulatively generate INR15b+ of surplus cash annually. This, coupled with the scale-up in rental income, provides enough firepower to capture the business development opportunity.

* However, with seven new projects (two projects in Thane, GSK-Worli, Peddar Road, Tardeo redevelopment, potential MHADA redevelopment in Andheri and Gurugram) already tied up, the management is unlikely to be aggressive on new project acquisitions in the near term.

* At current valuations, OBER’s residential business implies a value of INR360- 370b. The estimated value of the existing pipeline, including the Gurugram project, is INR230b, implying 50-60% of going concern premium, which already accounts for near-term growth visibility.

* We incorporate contribution from new hotel assets at Borivali and Thane and maintain our Neutral rating with an increased TP of INR1,390 indicating fair valuation.

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